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TMI Blog2022 (8) TMI 1165X X X X Extracts X X X X X X X X Extracts X X X X ..... peal) (AY: 2005-06) 2. This appeal is filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-13, Mumbai [the Ld. CIT(A)] in appeal No. CIT(A)-13/IT/335/11-12, dated 20/01/2014 arising out of the order passed U/s. 143(3) r.w.s 147 of the Income Tax Act, 1961 ["the Act"] for the AY 2005-06. 3. Brief facts of the case are that the assessee is a special purpose vehicle incorporated for the purpose of implementing a project envisaging construction and license out of equipping operation, management and maintenance of two multi purpose berths EQ-8 and EQ-9 in the northern arm of inner harbor at Visakhapatnam Port. The assessee is a successful bidder and was awarded construction of project of berth. Assessee filed its return of income for the AY 2005-06 declaring a business loss of Rs. 16,00,27,807/-. While the AO assessed the loss U/s. 143(3) vide order dated 24/12/2007 at Rs.13,19,98,520/-. The case was subsequently reopened u/s 147 and a notice U/s. 148 of the Act was issued and served on the assessee. The assessee in its reply dated 15/4/2010 requested the AO to treat the return of income filed originally as to have been filed in response to notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2015] 372 ITR 145 (Bombay) and argued that the assessee is only a licensor and does not own the property and hence depreciation cannot be allowed on the Berths constructed by the assessee. The Ld. DR supported the order of the Ld. AO. Per contra, at the outset, the Learned Authorized Representative [Ld. AR] invoked the provisions of Rule 27 of the ITAT Rules, 1963 and argued that reopening of the assessment itself is bad in law. The Ld. AR also pointed out to page 43 of the paper book wherein the notice U/s. 142(1) of the Act dated 10/10/2007 was issued on the assessee requesting the details called for with respect to additions to fixed assets. The Ld. AR also referred to the notice U/s. 142(1) of the Act dated 15/11/2007 (which finds a place at page 66 of the paper book) wherein vide Q. No. 7, the details bills for addition to fixed assets, project berth/buildings Rs. 81.91 Crores were asked to be submitted. The Ld. AR further submitted that in response to the notice, the assessee vide its submissions dated 5/12/2007 (which finds a place at pages 70 to 144 of the paper book) has provided the details with respect to additions to fixed assets during the Financial Year 2004-05 rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal then the order of the Ld. CIT(A) can be upheld even on other issues, because the issue regarding reopening is going to hit the root and the moment it is held that reopening is bad in law then all other consequent proceedings would become redundant. A bare perusal of the annexure to the Notice u/s 142(1) dated 10/10/2007 and 15/11/2007 which was issued in the original assessment proceedings u/s 143 makes it clear that the point on which re-assessment proceedings were initiated, was well considered in the original proceedings. 7. The Hon'ble High Court of Madras in CIT Vs India Cements Ltd [2020] 118 taxmann.com 99 (Madras) held as follows: 32. Even in this appeal, no such fact has been brought to our notice nor pleaded in the memorandum of grounds of appeal and presumably that is the reason why the Revenue had raised the substantial questions involving the interpretation of Rule 27 of the Rules and conveniently was not focusing on the issue as to whether the reopening of assessment was on account of change of opinion. A reading of the reassessment order dated 31-3-2004 will clearly reveal that all facts and figures were gathered by the Assessing Officer only from the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue is dismissed. ITA No. 2478/Mum/2015 (Assessee's appeal) (AY: 2007-08) 11. This appeal filed by the assessee is against the order of the Ld. CIT(A) in appeal No.CIT(A)-13/IT-51/13-14, dated 30/12/2014 arising out of the order passed U/s. 143(3) r.w.s 147 of the Act for the AY: 2007-08. 12. The assessee has raised the following grounds of appeal: "1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in upholding the issuance of Notice dated 28th March, 2012 U/s. 148 of the Act by the ld. DCIT, Circle7(3), Mumbai as well as reopening of the assessment of the appellant for the assessment year 2007-08 by rejecting the contentions and objections raised by the appellant and passing of assessment order dated 30th January, 2013 by the AO U/s. 143(3) r.w.s 147 of the Act. 2. On the facts and circumstances of the case, the Ld. CIT(A) erred in upholding the disallowance of the appellant‟s claim for allowance of depreciation on project berth of Rs. 17,53,11,007/- by following the judgment of the Hon‟ble Bombay High Court in North Karnataka Expressway Ltd vs. CIT. 3. On the facts and circumstances of the case, the Ld. CIT(A) erred in upholding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by the Licensee in the Licensor‟s Assets pursuant to this agreement shall, until transfer to the Licensor in accordance with this Agreement, be with the Licensee." 18. The Ld. AR also argued the Ld. CIT(A) by relying on the decision of the Hon'ble Bombay High Court in the case of North Karnataka Expressway Ltd vs. CIT in ITA No. 499 of 2012 wherein the High Court has decided the issue of depreciation U/s. 32 of the Act is not available to the tax payer. The Ld. AR stated that the facts of the case ie., North Karnataka Expressway Ltd (supra) are distinguishable as it is construction of roads on the lands belonging to the Government and only the collection of toll fees was permitted to the assessee as per Government notified rates and hence it cannot be compared with the present case. Alternatively the Ld.AR relied on the judgement of Hon'ble Allahabad High Court in CIT Vs Noida Toll Bridge Co Ltd. [2013] 30 taxmann.com 207 (Allahabad). Per contra, the Ld. DR heavily relied on the decision of the Bombay High Court in the case of North Karnataka Expressway Ltd (supra) and also on the Circular No.9/2014, dated 23/04/2014 issued by the Central Board of Direct Taxes [CB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of the benefit derived by the assessee, i.e., for a period of 30 years. Reliance placed by the Ld.AR on Noida Toll Bridge Co Ltd (Supra) could not be accepted because it was rightly distinguished in North Karnataka Expressway Ltd (supra), with which we are in agreement. Undisputedly the assessee has incurred huge expenditure for the construction of the Berth EQ8 and EQ9. The VPT instead of reimbursing the cost of construction to the assessee has granted right/benefit of enduring business revenue to the assessee for a period of 30 years. As per the License agreement the assessee is entitled for the Terminal Value at the end of the License period, at the time of transfer to the Licensor. Therefore the assessee needs to recover the cost incurred in the construction of the Berths, which is out of the fees to be collected from users. The benefit of earning revenue from the berth constructed by the assessee, but not legally owned by the assessee, arises from the license granted by the Licensor (VPT). Considering this peculiar situation to recover the cost of construction, where the assessee could not claim depreciation, CBDT Circular No. 09/2014 has clarified the treatment of such e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A)-13/IT/303/11-12, dated 20/01/2014 arising out of the order passed U/s. 143(3) of the Act for the AY 2009-10. 23. Since the grounds raised by the revenue in both these appeals are identical, the only difference is in figures in the claim of depreciation, both these appeals are clubbed and adjudicated together. However, we take ITA No.2400/Mum/2014 as a lead appeal for the sake of convenience. 24. The Revenue has raised the following grounds of appeal: "1 (i) The Ld. CIT(A) has erred on facts and in law in directing the Assessing Officer to allow depreciation of Rs. 16,55,47,631/- U/s. 32 of the Act without properly appreciating the factual and legal matrix of the case as clearly brought out by the Assessing Officer. (ii) The Ld. CIT(A) has erred on facts and in law in directing the Assessing Officer to allow depreciation of Rs. 16,55,47,631/- U/s. 32 of the Act without properly appreciating the fact that the assessee was not the owner of port and has only the right to earn income till the expiry of contract period. 2. The Ld. CIT(A)‟s order is contrary in law and on facts and deserves to be set aside. 3. The Appellant craves leave to amend or alter any ground or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al owner of the Berth. Even though, the construction was made in leased assets, which are transferable after a certain period, the assessee cannot claim ownership of the same for the purpose of section 32 of the Act. 30. In the instant case, the expenditure incurred by the assessee on BOT project brings some kind of enduring benefit to the assessee. However, the expenditure incurred by the assessee does not bring into existence any capital asset for the assessee. The asset which was created belongs to the Visakhapatnam Port Trust and the assessee derives only an enduring business advantage out of it. Thus, the expenditure incurred by the assessee should be looked upon for the purpose of conducting of business by the assessee. The assessee derives the benefit of collection of revenue for a period of 30 years from the License Agreement and hence the expenditure incurred by the assessee towards BOT Project should be treated as a revenue expenditure to be recovered over the License period of 30 years. This view is fortified by the decision of the Hon'ble Supreme Court in the case of Madras Auto Services Limited reported in (233 ITR 468) (SC). Consequently, the assessee is eligible to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buildings, structures, berths, wharves, equipment and other immovable and movable assets constructed, installed, located, created as provided by the Licensee after deducting depreciation claimed by the assessee and allowed by the revenue in earlier years so that the amortization claimed for the year under consideration shall be the difference between the initial cost and the depreciation already claimed by the assessee which needs to be amortized over the remaining license period. It is ordered accordingly. Thus, this ground no.(i) & (ii) raised by the Revenue is allowed for statistical purposes. 33. Grounds No.2, 3 and 4 raised by the Revenue are general in nature and therefore they need not be adjudicated. 34. Since the grounds raised by the Revenue are same in both the appeals, our decision given in ITA No.2400/Mum/2014 mutatis mutandis applies to the ITA No.2401/Mum/2014 also. It is ordered accordingly. 35. In the result, both appeals filed by the Revenue are partly allowed for statistical purposes. ITA No.2479/Mum/2015 (Assessee's appeal) AY: 2010-11 36. This appeal filed by the assessee against the order of the Ld. CIT(A)-14, Mumbai in appeal No. CIT(A)-13/IT-50/13-14, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant appeal. Accordingly, these grounds raised by the assessee are allowed for statistical purposes. 40. With respect to ground no.4, the Ld. AR argued that the interest did not pertain to acquisition of any assets nor there any expansion of business. Therefore, he pleaded that the interest was incurred in the normal course of business. The assessee's representative before the Ld. CIT(A) has submitted that the effective disallowance shall be Rs. 69 lakhs against the disallowance made by the Ld. AO to the extent of Rs. 1,91,00,000/-. The Ld.AR further submitted that the Ld. CIT(A) in the assessee's own case for the AY 2009-10 deleted the additions made by the AO with respect to interest U/s. 36(1)(iii) of the Act. Per contra the Ld. DR relied on the orders of Revenue Authorities. 41. We have heard the rival contentions and gone through the material available on record and the orders of the Authorities below. We find that the assessee has submitted an effective disallowance of Rs. 69 lakhs and the Ld. CIT(A) had therefore allowed the balance of Rs. 1,22,00,000/-. We find from the submissions made by the assessee before CIT(A), that the assessee has voluntarily admitted an e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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